L&T Finance buys Fidelity's India biz

In a deal that will create the 13th largest mutual fund company on the basis of assets under management (AUM), L&T Finance has signed a deal to buy the asset management company and the trustee company of Fidelity Mutual Fund.

The new entity will have AUM of Rs 13,497 crore with a market share of 2% for the quarter ending December 2011.

Investors have no immediate worries as the deal involves the continuation of the current management of Fidelity that will include 120 people except for the equity fund managers who will stay on till the entire integration is completed, after which they will return to Fidelity to manage offshore funds.

Both companies declined to reveal the size of the deal though industry sources said the deal size is expected to be 4-5% of the asset managed. Fidelity's current AUM is Rs 8,881 crore which would peg the deal size in the region of Rs 350 crore.

The deal would place L&T just behind Sundaram Mutual Fund in the pecking order.

"We are awaiting approvals from the regulators (SEBI) and Competition Commission of India," said N Sivaraman, president and whole time director, L&T Finance Holdings. "We have our own fund management team and fund managers from Fidelity will closely co ordinate till the integration is complete and then return to Fidelity."

He, however, declined to give the timeline for the integration to be completed.

On an expansion drive, L&T Financial services had bought the DBS Cholamandala Mutual Fund in January 2010 for Rs 45 crore.

"With this acquisition we are one step closer to achieving our vision of being among the top players in the Indian mutual fund industry," said YM Deosthalee, chairman and managing director, L&T Finance Holdings. "We remain committed to that goal and look forward to building one of India's most admired asset management businesses. This acquisition provides L&T Mutual Fund the necessary scale, products and access to retail customers to grow profitably."

Commenting on the deal, Dhirendra Kumar, chief executive officer, Value Research said, "The deal shows that running a mutual fund business is becoming highly competitive after the abolition of entry loads in 2009 and a weak economic environment."

Securities and Exchange Board of India (SEBI) abolished the entry load on mutual fund schemes in 2009 which dented the margins of aset management companies, triggering a wave of consolidation.